Retailers Tap Into Pricing & Data to Boost Cigar Sales
NATIONAL REPORT — Cigar declines are here, and they're likely staying for a while, according to category experts.
Data from Management Science Associates Inc. (MSA), a Pittsburgh-based company focused on analytics and informatics, shows that cigarillos — classified as "large cigars" by the convenience store trade — started to decline last year by almost 4% in wholesale shipments across all channels. This year, that decline is estimated to be 6% to 8%.
In the c-store/gas channel specifically, cigarillos were down in volume more than 12% for the 52 weeks ended June 29, 2024, compared to the previous 52 weeks. Filtered cigars, classified by the trade as "little cigars," were down in volume 16% for the same period.
"Now that the pandemic is over and employment is high, more consumers are in a work environment and they're finding it more difficult to find the time to smoke a cigarillo. They've returned to vapor or cigarettes and, even possibly, the new modern oral pouch products," said Don Burke, senior vice president of MSA, while also noting that there may be some production issues currently with natural leaf cigarillos.
Swisher, a major player in the cigarillo/large cigar space, calculates that from 2019 to 2024, the large cigar category has witnessed a roughly 3.7% annual decline.
"One of the key challenges to the overall large cigar category has been maintaining shelf space on the backbar as retailers continue to increase their vape and modern oral nicotine sections," said Greg Schmidt, Swisher's vice president of business analytics. "Retailers are facing added pressure to find new options for category growth. We've seen planograms evolve and expand to fit with the changing consumer preferences for new backbar subcategories, and we expect that to continue."
Regarding filtered cigars, Burke pointed out that since they are now taxed similarly to cigarettes, there is no longer a significant price advantage. "So, that decline is probably because there have been more cigarette brands being stocked in deep discount and they are competing with little filtered cigars," he explained.
Burke also noted that local bans on flavors are a factor in cigar declines. "It's very likely that the additional purchases made in the black and grey markets are allowing customers to get the flavors they want, rather than through the classes of trade we track," he said. "In California and Massachusetts particularly, the black and grey markets are flourishing and a lot of cigar purchases are not being tracked."
The Fate of Flavors
Looming in the background of all tobacco declines is regulation, and cigars are no exception — at least not yet. Banning flavored cigars is still very much in play, although there has been no recent federal update. The U.S. Food and Drug Administration (FDA) proposal to ban characterizing flavors other than tobacco in cigars "remains on hold," relayed Bryan Haynes, a partner specializing in tobacco at the national law firm of Troutman Pepper.
"Although the ban on flavored cigars proposed by the FDA has been delayed indefinitely, FDA continues to state, publicly and often, that it wants to see the ban finalized," Schmidt cited. "This is notwithstanding the massive body of evidence brought forward by the industry and others, such as law enforcement and civil liberties groups, that the proposed ban is problematic and unnecessary. We will continue to engage in opposition to the proposed rule, and other unwise and unwarranted regulations, at every opportunity."
The National Association of Tobacco Outlets (NATO) and its retail members remain engaged with federal, state and local legislators/regulators on key issues, including the federal rulemaking to ban flavored cigars. On the state level, NATO Executive Director David Spross told Convenience Store News that while no state banned flavored cigars in 2024, "it is expected that 15 to 20 states will consider flavor bans on all tobacco products in 2025."
Jeremy Weiner, category director of cigars and premium products at Smoker Friendly, a Boulder, Colo.-based cigarette and tobacco retailer with more than 800 stores nationwide, said he's bracing for continued legislation, including the FDA ban on flavored cigars. "That is the regulation that is most concerning. If it happens, our cigar set would shrink by more than 50%," he said.
Smoker Friendly participates in most of the trade organizations that fight these regulations and taxes. "As soon as we find out about these proposed regulations, we get the word out to our store personnel, so they can get our customers involved in helping to fight back," said Weiner.
Retailers play an important role in speaking up in opposition to local regulations, including flavor bans, according to Swisher's Schmidt. "Retailers should make sure legislators and regulators have an opportunity to hear the other side of the story, particularly the negative impact of these regulations on small businesses," he urged.
Planogram Push
So, what can convenience retailers do in these times to sell more cigars?
Smoker Friendly refreshes its domestic cigar planograms, which include cigarillos and filtered cigars, every year. The annual reset presents a good opportunity for manufacturers to refresh signage and shelf talkers as well, Weiner noted.
"We add new items that manufacturers want to feature and remove slower-moving items or items that have been discontinued. This helps create new excitement for the domestic cigar consumer," he said.
Like Schmidt of Swisher, Weiner has observed that many cigarillo customers are starting to switch from combustible products to other alternative products, such as vapor and nicotine pouches, which makes an annual reset even more imperative.
"We suggest retailers continue to work with their vendors on a customized promotional strategy while keeping a close eye on the Fair Share SKU Index to ensure the proper lineup of cigars are stocked," said Schmidt. "Offering a variety of options to adult cigar consumers drives store profitability since they tend to make more trips per buyer vs. other tobacco shoppers, and they also have larger basket sizes as they're inclined to purchase items from other categories more often than other tobacco shoppers."
Swisher's vision is to drive value and consumer-driven innovation with cigars that have staying power and a differentiation on-shelf. "We know that short-lived launches drive complexity and costs for our retail partners, as well as confusion and frustration for our adult consumers. An insights-backed innovation pipeline has been a key for success to drive shelf consistency and minimize disruption," Schmidt stated.
A surge in retailer capabilities in the digital space offers additional opportunity. "In-store digital merchandising and loyalty app platforms in c-stores are increasingly robust, enabling efficient opportunities for manufacturers to connect brands with consumers in-store and activate more awareness, trial and conversion-driving tactics," he added.
Value is at the center of it all, according to MSA's Burke. He pointed out that the dollar store trade is the only one where cigars are growing, so it might behoove c-store retailers to check out their area's dollar stores and offer similar cigar products and pricing.
"We're seeing consumers buying down in all tobacco categories," Burke said. "So, in order for retailers to make the most of the category in this environment, there needs to be a strong value-priced approach and there's only so much promoting you can do. Make sure you're also offering discount branded cigarillos. Many cigar customers are simply looking for the lowest price and they've even moved to dollar stores to try to get that pricing."
Unfortunately, category experts don't foresee the cigar declines going away anytime soon, and cigarillos are still the largest segment within the other tobacco products category for c-stores.
Burke expects "the decline trends of today to continue well into 2025," while Schmidt and Swisher expect the category to see volume decline over the next five years.
"Swisher's investments in adult consumer engagement, combined with data-driven innovations tailored to adult consumer trends, should help mitigate category contraction," said Schmidt. "C-stores will continue to be the main channel of distribution and sales for the large cigar category, so it is important that they continue to devote sufficient space to it."